HVAC add-on/ replacement (AOR) costs have a considerable impact on your bottom line. Contractors often use AOR equipment costs to calculate gross margin per job. An increase in the cost of this equipment will lead to a decrease in gross margins and profitability. You want to maintain your profits as AOR prices rise. You’ll need to find ways of reducing the amount spent on these items or increasing sales volume. There are many different types of equipment. Also, every manufacturer tries to differentiate their product. It can prove challenging for contractors to understand how they should price out AOR jobs. To learn more about what an AOR project costs in terms of percentage of sales and KPI standards, keep reading.
What KPI Monitoring Means for Your HVAC Business
The last thing you need as an HVAC contractor is to get blindsided by unforeseen costs. Imagine that everything is going great.
You have plenty of jobs in the pipeline, and there’ve been no job delays. You’ve even caught up on your paperwork. As you dig into your paperwork, however, you receive an unpleasant surprise.
Labor costs have devoured 50% of your profit. Now, you barely have any income to show for all your hard work. Also, you can forget about that expansion you’ve been planning.
If you don’t monitor key performance indicators (KPIs), anything can sneak up on your profit—including AOR costs. By monitoring the right KPIs, you can avoid cost overruns.
Every HVAC business is unique. The right technology can help you pick the perfect KPIs to keep your profits in the black.
AOR Equipment as a Percentage of Sales
If you want to remain profitable, you’ll want to keep AOR equipment costs as a percentage of sales at 25%. A great way to maintain profitability is to seek a lower percentage of equipment costs out of the selling price. Also, your total replacement sale should never exceed 35% in total equipment and parts.
Imagine that your total selling price is $10,000. Equipment costs should not exceed 25% of the sale.
That percentage leaves 10% of the sale for equipment costs. Altogether, you don’t want to spend more than $3,500 on AOR on a $10,000 job.
20 years ago, it was easy to accomplish this task. As equipment costs have risen over time, however, it’s become increasingly difficult to maintain this kind of profitability.
Still, you’ll need to try your hardest to meet this goal. By doing so, you’ll maintain greater gross profitability for replacements.
Getting a Grip on KPIs
Aside from choosing the right KPIs, it can prove daunting to figure out the precise targets to choose. If you ever attempted this task, the process can seem overwhelming.
Even if you manage to scrape together some ideas, you might wonder how you’re going to maintain all of these various KPIs.
Fortunately, you don’t have to do it alone. A technology solution just for HVAC contractors can help you navigate your way through the numbers easily.
When choosing software, you want to work with a provider with experience in helping HVAC businesses. Luckily, you’re already in the right place to find just such a solution that can help you tune up your HVAC business and monitor the right KPIs.
Start Maximizing Your Profit Today
Now you know more about what an AOR project costs in terms of percentage of sales and KPI standards. You’ve also learned that technology can take the complex work out of choosing and monitoring KPIs for your HVAC business.
However, where do you begin your search for the right technology? The answer is, “Right here!”
Enterprise Selling Solutions can help you get a grip on your KPIs and maximize your profits. Contact us today at (866) 901-4199 or connect with us online to schedule a free demo so you can see how our technology can help you keep costs in check.